External Shocks,Financial Openness and Dual-Pillar Regulatory Framework
In the current highly complex and uncertain external environment,it is of great theoretical and practical sig-nificance to investigate how to achieve multiple macroeconomic objectives such as financial openness,exchange rate liberaliza-tion,and domestic economic recovery through policy combination design.This paper constructs a multi-sectoral Dynamic Sto-chastic General Equilibrium(DSGE)model with features of financial openness to analyze the mechanism and welfare impli-cation of the dual-pillar regulatory framework of monetary policy and macroprudential policy in response to external shocks.Additionally,the paper explores the impact of the level of financial openness on the choice of exchange rate regimes and the co-ordination of policies.Numerical simulation results indicate that,firstly,to address external shocks,the central bank needs to intensify its man-agement of exchange rate volatility with the increasing level of financial openness.Simultaneously,the effectiveness of macro-prudential policy in counter-cyclically adjusting bank balance sheets improves with a higher level of financial openness,stabi-lizing the financial sector and,consequently,the entire macroeconomy.Moreover,within the"dual-pillar"regulatory frame-work,the coordinated use of monetary policy and macroprudential policy not only brings about significant welfare improve-ments but also reduces the optimal degree of central bank management of exchange rate volatility.This,then,enhances the in-dependence of monetary policy,creating conditions for achieving the multiple goals of financial openness,exchange rate liberal-ization,and domestic economic recovery.In comparison to existing research,this paper makes several contributions.Firstly,the paper provides an insightful complement to the literature,which has less often analyzed dual-pillar regulation from the perspective of financial openness.Secondly,by investigating the policy combination design needed for simultaneous financial openness and exchange rate liberal-ization,this paper provides quantitative research support for policymaking to achieve multiple macroeconomic objectives.Thirdly,the paper discusses the existence of macroprudential policies and the influence of different regulatory intensities on the independence of monetary policy,offering theoretical insights for enhancing monetary policy independence and adhering to a policy stance that balances internal and external equilibrium in the context of financial openness.
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